Another PAGA versus arbitration decision, this time from the Second Appellate District in Perez v. U-Haul Co. of California

Law is driven as much by unforeseen consequences as it is by any rational planning. The Labor Code Private Attorneys General Act of 2004 (PAGA) is exhibit one.  Over the last five or so years, inexorable advance of the Federal Arbitration Act looked as if it would cut a fatal swath through many class actions. But, somewhat unexpectedly, PAGA has served as a counterpoint in the wage & hour sector.  In Perez v. U-Haul Co. of California (Sept. 16, 2016), the Second Appellate District, Division Seven, affirmed the trial Court's ruling that U-Haul could not assert an arbitration agreement to compel the plaintiffs to individually arbitrate whether they qualified as “aggrieved employee[s],” to determine in arbitration whether they had standing to pursue a PAGA claim.

The Court agreed with Williams v. Superior Court, 237 Cal. App. 4th 642 (2015), which also held that California law prohibits the enforcement of an employment agreement provision that requires an employee to individually arbitrate whether he or she qualifies as an “aggrieved employee” under PAGA, and then (if successful) to litigate the remainder of the “representative action in the superior court.”  Slip op., at 11-12.  The Court concluded by dismissively rejecting the notion that the FAA can apply to claim belonging to a governmental entity or its designated proxy.

Gregg A. Farley, of the Law Offices of Gregg A. Farley, and Sahag Majarian, of the Law Offices of Sahag Majarian, represented Plaintiff and Respondent Sergio Lennin Perez; Larry W. Lee and Nicolas Rosenthal. of the Diversity Law Group, and Sherry Jung, of the Law Offices of Sherry Jung, represented Plaintiff and Respondent Erick Veliz.

Ninth Circuit examines arbitration and PAGA claims in Mohamed v. Uber Technologies, Inc.

The Ninth Circuit tackles a complicated set of arbitration issues in Mohamed v. Uber Technologies, Inc. (9th Cir. Sept. 7, 2016).  Among other things, the panel held that the District Court erred when it decided the question of arbitrability, since the question of arbitrability was delegated under the agreement to an arbitrator.  But the panel agreed that the defendants could not compel arbitration of the PAGA claim asserted in the case, severing that claim for further proceedings in before the trial court.  Finally, the panel agreed that a separate defendant not party to the arbitration agreement could not assert a right to enforce the agreement as an agent of Uber.

Pull up a chair...and listen to the nightmarish tale of....suitable seating (in Kilby v. CVS Pharmacy, Inc.)

I can still remember when the first suitable seating cases were filed.  I reckon' it happened right about the time that the wage & hour landscape became unsettled in the meal period and rest break areas, class certification decisions were all over the place prior to Brinker, and PAGA claims were getting a long look as an alternative and supplemental approach to class claims.  The suitable seating cases went through an initial wave of appellate court analysis, but, without California Supreme Court guidance on the issue, federal courts were left to speculate about what the California Supreme Court would say on the matter.  The Ninth Circuit addressed that lack of clarity by certifying questions to the California Supreme Court.  In Kilby v. CVS Pharmacy, Inc. (April 4, 2016), the California Supreme Court answered those questions.

The questions, as posed by the Ninth Circuit were:

(1) Does the phrase “nature of the work” refer to individual tasks performed throughout the workday, or to the entire range of an employee’s duties performed during a given day or shift? 

(2) When determining whether the nature of the work “reasonably permits” use of a seat, what factors should courts consider?  Specifically, are an employer’s business judgment, the physical layout of the workplace, and the characteristics of a specific employee relevant factors? 

(3) If an employer has not provided any seat, must a plaintiff prove a suitable seat is available in order to show the employer has violated the seating provision? 

Slip op., at 2.  The short answers (which were followed by an extensive discussion) are:

(1) The “nature of the work” refers to an employee’s tasks performed at a given location for which a right to a suitable seat is claimed, rather than a “holistic” consideration of the entire range of an employee’s duties anywhere on the jobsite during a complete shift.  If the tasks being performed at a given location reasonably permit sitting, and provision of a seat would not interfere with performance of any other tasks that may require standing, a seat is called for. 

(2) Whether the nature of the work reasonably permits sitting is a question to be determined objectively based on the totality of the circumstances.  An employer’s business judgment and the physical layout of the workplace are relevant but not dispositive factors.  The inquiry focuses on the nature of the work, not an individual employee’s characteristics. 

(3) The nature of the work aside, if an employer argues there is no suitable seat available, the burden is on the employer to prove unavailability. 

Slip op., at 2.  Before looking at any of the more interesting parts of the Court's discussion, we now know with certainty that suitable seating is a task-based, not a position-based, requirement.  And I immediately concluded after reading this opinion that I wanted to start a business that specializes in making narrow and light barstool-style swivel chairs for cashiers in the retail and grocery sectors.  That's where the real money is going to be found.

Anyhow, chair empire plans aside, the Court began by explaining the history of the IWC and the suitable seating provision in the various wage orders.  Next, the Court looked at pronouncements on the most recent standard by the IWC and DLSE. For instance, the Court took note of a DLSE amicus curiae brief filed in a federal action:

[T]he DLSE filed an amicus curiae brief in Garvey v. Kmart Corp. (N.D.Cal. Dec. 18, 2012, No. CV 11-02575 WHA) 2012 WL 6599534 (Garvey), a federal class action suit claiming Kmart cashiers were entitled, under section 14(A), to seats while working.  The DLSE emphasized reasonableness as the guiding standard:  “If called upon to enforce Section 14, DLSE would apply a reasonableness standard that would fully consider all existing conditions regarding the nature of the work performed by employees.  Upon an examination of the nature of the work, DLSE would determine whether the work reasonably permits the use of seats for working employees under subsection (A) of Section 14, and whether proximate seating has been provided for employees not engaged in active duties when such employees are otherwise required to stand under subsection (B).”

Slip op., at 11.  After reviewing the DLSE and IWC commentary on the suitable seating requirement, the Court then set about the task of examining the IWC wage order language. After reviewing the language, the Court rejected the defendants' position that jobs should be classified as "sitting" jobs or "standing" jobs:

Defendants’ argument sweeps too broadly and is inconsistent with the purpose of the seating requirement.  As discussed, the IWC’s wage orders were promulgated to provide a minimum level of protection for workers.  The requirement’s history reflects a determination by the IWC that “humane consideration for the welfare of employees requires that they be allowed to sit at their work or between operations when it is feasible for them to do so.”  (IWC, Statement of Findings by the Industrial Welfare Commission of the State of Cal. in Connection with the Revision in 1976 of its Orders Regulating Wages, Hours, and Working Conditions (Aug. 13, 1976) p. 15.)  Defendants’ proposed consideration of all tasks included in an employee’s job description ignores the duration of those tasks, as well as where, and how often, they are performed.  This all-or-nothing approach could deprive an employee of a seat because most of his job duties are classified as “standing” tasks, even though the duration, frequency, and location of the employee’s most common tasks would make seated work feasible while performing them.  There is no principled reason for denying an employee a seat when he spends a substantial part of his workday at a single location performing tasks that could reasonably be done while seated, merely because his job duties include other tasks that must be done standing.

Slip op., at 14.  The Court expressed concern that the all-or-nothing approach could result in a situation where two employees performing the same task could have different seating rights, based on the overall classification of their job. Yet, the Court also found the plaintiffs' position too narrow, focusing on a single task to determine if that one task could be performed seated.  The Court found that focusing on the work done and the tasks performed in a location alleviated the problems created by both the defendants' approach and the plaintiffs' approach.

The Court then examined the "reasonably permits" portion of the seating requirements. The Court found that the employer's assessment of overall job performance (its business judgment) was a factor that could be considered, as was the physical layout of the workplace .  These factors, however, must be considered "in light of the overall aims of the regulatory scheme, which has always been employee protection."  The Court disagreed that differences between employees was a factor, since the regulation focused on the "work," and not the "worker."

Finally, the Court swiftly rejected the idea that a plaintiff must prove that a suitable seat is available, after showing that the nature of the work would reasonably permit the use of a seat.

The Court concluded by saying, "Sit on that."  No, not really.  But the Court was unanimous.

Analysis of Iskanian v. CLS Transportation Los Angeles LLC

Next up on the update list is Iskanian v. CLS Transportation Los Angeles LLC (June 23, 2014). In Iskanian, a limousine driver filed a class action lawsuit on behalf of himself and similarly situated employees for his employer’s alleged failure to compensate its employees for, among other things, overtime and meal and rest periods.  Plaintiff also asserted a PAGA claim. The employee had entered into an arbitration agreement that waived the right to class proceedings. The defendant moved to compel arbitration. After the court granted the motion, Gentry v. Superior Court (2007) 42 Cal.4th 443 (Gentry) was decided and the Court of Appeal issued a writ of mandate directing reconsideration in light of Gentry. On remand, the defendant withdrew the motion and the plaintiff moved for certification. A class was certified.

After the United States Supreme Court issued AT&T Mobility LLC v. Concepcion (2011) 563 U.S. __ [131 S.Ct. 1740] (Concepcion) and invalidated Discover Bank v. Superior Court (2005) 36 Cal.4th 148 (Discover Bank), CLS renewed its motion to compel arbitration. The trial court granted the renewed motion.

On appeal, the Court of Appeal agreed that Concepcion invalidated Gentry.  The court also declined to follow a National Labor Relations Board ruling that class action waivers in adhesive employment contracts violate the National Labor Relations Act.  With respect to the PAGA claim, the Court of Appeal construed the plaintiff’s position to be that PAGA does not allow representative claims to be arbitrated, holding that the FAA precludes states from withdrawing claims from arbitration and that PAGA claims must be argued individually, not in a representative action, according to the terms of the arbitration agreement.

The Supreme Court granted review, examining (1) whether a state’s refusal to enforce such a waiver on grounds of public policy or unconscionability is preempted by the FAA, and (2) whether the FAA precludes the California Legislature from deputizing private litigants to pursue claims on behalf of the State.

While the plaintiff argued that Gentry survives Concepcion because it does not state a categorical rule such as that articulated in Discover Bank, the Court disagreed:

[T]he fact that Gentry’s rule against class waiver is stated more narrowly than Discover Bank’s rule does not save it from FAA preemption under Concepcion.  The high court in Concepcion made clear that even if a state law rule against consumer class waivers were limited to “class proceedings [that] are necessary to prosecute small-dollar claims that might otherwise slip through the legal system,” it would still be preempted because states cannot require a procedure that interferes with fundamental attributes of arbitration “even if it is desirable for unrelated reasons.”  (Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p. 1753]; see American Express Co. v. Italian Colors Restaurant (2013) 570 U.S. __, __ & fn. 5 [133 S.Ct. 2304, 2312 & fn. 5] (Italian Colors).)  It is thus incorrect to say that the infirmity of Discover Bank was that it did not require a case-specific showing that the class waiver was exculpatory.  Concepcion holds that even if a class waiver is exculpatory in a particular case, it is nonetheless preempted by the FAA.  Under the logic of Concepcion, the FAA preempts Gentry’s rule against employment class waivers.

Slip op., at 7-8. Next, the Court concluded that the reasoning in Sonic II was insufficient to save Gentry:

Sonic II went on to explain that “[t]he fact that the FAA preempts Sonic I’s rule requiring arbitration of wage disputes to be preceded by a Berman hearing does not mean that a court applying unconscionability analysis may not consider the value of benefits provided by the Berman statutes, which go well beyond the hearing itself.”  (Sonic II, supra, 57 Cal.4th at p. 1149, italics added.)  The Berman statutes, we observed, provide for fee shifting, mandatory undertaking, and several other protections to assist wage claimants should the wage dispute proceed to litigation.  (Id. at p. 1146.)  “Many of the Berman protections are situated no differently than state laws concerning attorney fee shifting, assistance of counsel, or other rights designed to benefit one or both parties in civil litigation.”  (Id. at p. 1150; see, e.g., Lab. Code, § 1194, subd. (a) [one-way fee shifting for plaintiffs asserting minimum wage and overtime claims].)  The value of these protections does not derive from the fact that they exist in the context of a pre-arbitration administrative hearing.  Instead, as Sonic II made clear, the value of these protections may be realized in “potentially many ways” through arbitration designed in a manner “consistent with its fundamental attributes.”  (Sonic II, at p. 1149; see ibid. [“Our rule contemplates that arbitration, no less than an administrative hearing, can be designed to achieved speedy, informal, and affordable resolution of wage claims . . . .”].)

Slip op., at 9-10.  Since Sonic II did not prohibit the use of an arbitration procedure that satisfied the Berman statutes, the Court concluded that Sonic II survived Concepcion, unlike Gentry, which directly compared class actions that interfered with arbitration to the arbitration procedure.

Next, the Court considered the holdings of D.R. Horton Inc. & Cuda (2012) 357 NLRB No. 184 [2012 WL 36274] (Horton I) and the subsequent decision by the Fifth Circuit (Horton II). The Court concluded that the NLRA did not overrule the FAA, consistent with other courts considering the issue:

We thus conclude, in light of the FAA’s “ ‘liberal federal policy favoring arbitration’ ” (Concepcion, supra, 563 U.S. at p.__ [131 S.Ct. at p. 1745]), that sections 7 and 8 the NLRA do not represent “a contrary congressional command” ’ overriding the FAA’s mandate.  (CompuCredit v. Greenwood, supra, 565 U.S. at p. __ [132 S.Ct. at p. 669.)  This conclusion is consistent with the judgment of all the federal circuit courts and most of the federal district courts that have considered the issue.  (See Sutherland v. Ernst & Young, LLP (2d Cir. 2013) 726 F.3d 290, 297 fn. 8; Owen v. Bristol Care, Inc. (8th Cir. 2013) 702 F.3d 1050, 1053–1055; Delock v. Securitas Sec. Servs. USA, Inc. (E.D.Ark. 2012) 883 F.Supp.2d 784, 789–790; Morvant v. P.F. Chang’s China Bistro, Inc. (N.D.Cal. 2012) 870 F.Supp.2d 831, 844–845; Jasso v. Money Mart Express, Inc. (N.D.Cal. 2012) 879 F.Supp.2d 1038, 1048–1049; but see Herrington v. Waterstone Mortg. Corp. (W.D.Wis. Mar. 16, 2012) No. 11-cv-779-bbc [2012 WL 1242318, at p. *5] [defendant advances no persuasive argument that the Board interpreted the NLRA incorrectly].)

Slip op., at 21. At this juncture, and given the composition of the U.S. Supreme Court, it is exceedingly unlikely that the conclusion of Horton I will be accepted.

After analyzing and rejecting the plaintiff’s waiver argument, the Court turned to the PAGA claim. After the Court explained the history of the statute, the first question examined was whether an employee’s right to bring a PAGA action is waivable. Concluding that PAGA rights could not be waived, the Court said:

The unwaivability of certain statutory rights “derives from two statutes that are themselves derived from public policy.  First, Civil Code section 1668 states:  ‘All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.’  ‘Agreements whose object, directly or indirectly, is to exempt [their] parties from violation of the law are against public policy and may not be enforced.’  (In re Marriage of Fell (1997) 55 Cal.App.4th 1058, 1065.)  Second, Civil Code section 3513 states, ‘Anyone may waive the advantage of a law intended solely for his benefit.  But a law established for a public reason cannot be contravened by a private agreement.’ ”  (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 100 (Armendariz).)

Slip op., at 34.  The Court then said, “Notwithstanding the analysis above, a state law rule, however laudable, may not be enforced if it is preempted by the FAA.” Examining that second question, the Court held that the PAGA right is not a “private” right, existing only as a grant of a public right:

We conclude that the rule against PAGA waivers does not frustrate the FAA’s objectives because, as explained below, the FAA aims to ensure an efficient forum for the resolution of private disputes, whereas a PAGA action is a dispute between an employer and the state Labor and Workforce Development Agency.

Slip op., at 36-37. This distinction, which was uncertain until this decision, was the source of inconsistent outcomes when other courts examined the issue of whether PAGA claims were subject to arbitration agreements.

Justice Chin authored a concurrence, though he restated his disagreement with the contention that Sonic II survived Concepcion.

Justice Werdegar concurred with the majority opinion regarding PAGA, but dissented as to the enforceability of any clause depriving employees of the right to engage in concerted action: “Eight decades ago, Congress made clear that employees have a right to engage in collective action and that contractual clauses purporting to strip them of those rights as a condition of employment are illegal.  What was true then is true today.” Werdegar diss. & conc., at 1.  Justice Werdegar strongly defended the right to engage in concerted activity, despite the FAA:

An arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract” (9 U.S.C. § 2, italics added).  Here, we deal with a provision—the waiver of the statutorily protected right to engage in collective action—that would be unenforceable in any contract, whether as part of an arbitration clause or otherwise.  The FAA codifies a nondiscrimination principle; “[a]s the ‘saving clause’ in § 2 indicates, the purpose of Congress in 1925 was to make arbitration agreements as enforceable as other contracts, but not more so.”

Werdegar diss. & conc., at 9. Justice Werdegar’s dissenting opinion as to the interaction of the NLRA, the Norris-Laguardia Act and the FAA is an exceptional defense of the position advocated by the plaintiff and in Horton I. If nothing else, it is worth a thorough reading by practitioner in the wage and hour field.

Episode 5 of the Class Re-Action podcast is now available

Episode 5 is now available for streaming, direct download, and, shortly, through iTunes and the XBox music store.  Thanks to Keith Jacoby of Littler and Josh Konecky of Schneider Wallace for contributing as guests.  My apologies for the bit of echo in this episode, but it was beyond my control.

PAGA claims of multiple employees are not a "common and undivided interest"

In  Urbino v. Orkin Servs. of California, Inc. (9th Cir. Aug. 13, 2013), the Ninth Circuit took up the question of whether PAGA claims aggregate for purposes of CAFA's damage prerequisite.  Plaintiff, a California citizen, worked in a nonexempt, hourly paid position for defendants, each of whom is a corporate citizen of another state, in California. Alleging that defendants illegally deprived him and other nonexempt employees of meal periods, overtime and vacation wages, and accurate itemized wage statements, plaintiff filed a representative PAGA action.  Defendants removed.  Plaintiff moved to remand.  The district court was obligated to decide whether the potential penalties could be combined or aggregated to satisfy the amount in controversy requirement. If they could, federal diversity jurisdiction would lie because statutory penalties for initial violations of California’s Labor Code would total $405,500 and penalties for subsequent violations would aggregate to $9,004,050. If not, the $75,000 threshold would not be met because penalties arising from plaintiff’s claims would be limited to $11,602.40.  Acknowledging a split of opinion, the district court found PAGA claims to be common and undivided and therefore capable of aggregation.

The Court examined the "common and undivided interest" exception to the rule that multiple plaintiffs cannot aggregate claims.  Observing that common questions do not create that common and undivided interest, the Court said:

But simply because claims may have “questions of fact and law common to the group” does not mean they have a common and undivided interest.  Potrero Hill Cmty. Action Comm. v. Hous. Auth., 410 F.2d 974, 977 (9th Cir. 1969). Only where the claims can strictly “be asserted by pluralistic entities as such,” id., or, stated differently, the defendant “owes an obligation to the group of plaintiffs as a group and not to the individuals severally,” will a common and undivided interest exist, Gibson v. Chrysler Corp., 261 F.3d 927, 944 (9th Cir. 2001) (quoting Morrison v. Allstate Indem. Co., 228 F.3d 1255, 1262 (11th Cir. 2000)).

Slip op., at 8.

The defendants then argued that the interest asserted by plaintiff was not his, but was actually the state's interest.  The Court's majority did not find that argument compelling:

To the extent Plaintiff can—and does—assert anything but his individual interest, however, we are unpersuaded that such a suit, the primary benefit of which will inure to the state, satisfies the requirements of federal diversity jurisdiction. The state, as the real party in interest, is not a “citizen” for diversity purposes. See Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 461 (1980) (courts “must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy.”); Mo., Kan. & Tex. Ry. Co. v. Hickman, 183 U.S. 53, 59 (1901); see also Moor v. Cnty. of Alameda, 411 U.S. 693, 717 (1973) (explaining that “a State is not a ‘citizen’ for purposes of the diversity jurisdiction”).

Slip op., at 9.   By the way, this cleverly avoids deciding an unnecessary issue that is of some consequence in the world of arbitration.  It does, however, suggest a point upon which the California Supreme Court will likely have to express an opinion when it decides whether PAGA claims are excused from arbitration clause enforcement or, alternatively, from arbitration clauses that preclude “class” claims.

The dissent, like the majority opinion, is also relatively short, but it is also well argued.

Thanks to the tipster for directing me to the decision (since I don't know whether you want to be identified, you remain anonymous).

NOTE:  This is an updated version of an earlier post on this case.  The older post has been removed. 

The best line of the day award

I was at a hearing today.  I will omit all names and locations, but this exchange (recounted to the best of my recollection) between a Clerk and a purported objector to a class action settlement is too important to withhold from the world:

CLERK [to objector sitting at counsel's table]: Are you an attorney?

OBJECTOR:  Yes, yes I am.  I am a private attorney.....general.

The exchange went on a little longer, but, really, what more is there to say?  I think we are all, at heart, private attorneys....general from time to time.

Brown v. Ralphs Grocery Co. is now final final final

Assuming you fall into the camp that doesn't want to see arbitration used to destroy all collective rights (which camp includes plaintiffs' counsel explicilty and defendants' counsel covertly), here is some good  news, compliments of The UCL Practitioner.  The U.S. Supreme Court denied a petition for writ of certiorari in Brown v. Ralphs Grocery Co., 197 Cal.App.4th 489 (2011).  In Brown, the Court of Appeal (Second Appellate District, Division Five) held that representative PAGA claims (i.e., not class-based claims) are not subject to arbitration, even post-Concepcion.  That's Concepcion, the case, not the other option (with different spelling).

Get your PAGA letters ready.

Second Court of Appeal holds that PAGA penalties are available for certain wage order violations

In Bright v. 99¢ Only Stores, 189 Cal. App. 4th 1472 (2010), on an issue of first impression, the Court of Appeal (Second Appellate District, Division Five) held that (1) violations of Wage Order No. 7, subdivision 14 are violations of section 1198; and (2) civil penalties under section 2699, subdivision (f) are available despite the fact that Commission wage order No. 7-2001 has its own general penalty provision.  (Discussed on this blog, in a very serious post, here.)  In other words, PAGA penalties are available for wage order violations, at least as far as the adequate seating requirement is concerned.  But when a Court of Appeal tackles a question of first impression, you always have to wonder whether that holdling to stand up over time.  Today, in Home Depot U.S.A., Inc. v. Superior Court (December 22, 2010), the Court of Appeal (Second Appellate District, Division Four) agreed with their fellow justices from Division Five and held that (1) violations of a Wage Order are violations of section 1198; and (2) civil penalties under section 2699, subdivision (f) are available unless some other penalty is specifically provided for in the Wage Order.

At this point, the best business opportunity in California would be small footprint stools that can fit behind registers at retail stores.

Discovery ruling in Currie-White v. Blockbuster, Inc. holds that a protective order is sufficient protection for class member contact information ordered produced

United States Chief Magistrate Judge Maria-Elena James is on a roll with the class member contact information discovery orders.  In Currie-White v. Blockbuster, Inc., 2010 WL 1526314 (N.D.Cal. Apr 15, 2010), Magistrate Judge James Ordered defendant to produce class member contact information, subject to certain modifications to a pre-existing protective order in the case.  The interesting additional tidbit in this case is that it is described as a "class action against Defendant under the Labor Code Private Attorneys General Act of 2004, Cal. Labor Code §§ 2698, et seq."  Moving to certify PAGA-based penalty claims certainly eliminates all the uncertainty about PAGA-based representative actions.